Considering the higher expected return and the investor's willingness to accept the higher risk associated with the beta, it could be a good decision to invest in this portfolio. The answer is b) Yes.
Beta of 2: This indicates that the portfolio's returns are expected to be twice as volatile as the market (e.g., the S&P 500). In other words, if the market goes up 10%, the portfolio is expected to go up 20%, and vice versa.
Expected return of 11%: This means that the portfolio is projected to earn an average of 11% annually, regardless of market movements.
Trailing 5-year return of the S&P 500 of 6%: This is the historical average return of the market over the past five years.
Now, let's compare these factors:
The portfolio's expected return (11%) is higher than the market's historical return (6%). This suggests that the portfolio has the potential to outperform the market over the long term, even though it is more volatile.
The higher beta (2) also implies higher potential rewards and risks. Investors should be comfortable with this higher level of volatility to reap the potential benefits of the higher expected return.
However, it is important to note that this is a simplified analysis and there are many other factors to consider when making investment decisions. These include your individual risk tolerance, investment horizon, and overall portfolio diversification.